Community Chosen Answer

Yup. You're installing the MSI (or, more correctly, your deployment system is) using the local System account so Windows Installer is correctly resolving that path.

If you have user data to deploy as part of your package, you'll need to use self-healing. That subject has been done to death here and elsewhere. Start by seeking out John McFadyen's blog on the subject.

Remember that, in order to self-heal, WI may need access to the original MSI/MST so be sure to copy them locally and install from there.